Canfor Q3 2025 slides: Losses deepen amid duty expenses and weak market demand

Introduction & Market Context

Canfor Corporation (TSX:CFX) presented its third quarter 2025 financial results on November 6, revealing deepening adjusted losses despite a slight improvement in reported figures. The forestry company’s stock dropped 11.54% following the announcement, closing at $0.39, reflecting investor concerns about ongoing market challenges in both lumber and pulp segments.

The presentation highlighted persistent headwinds facing the company, including weak demand, high inventory levels, and significant duty-related expenses. These challenges contributed to a widening adjusted net loss compared to the previous quarter, despite some operational improvements.

Quarterly Performance Highlights

Canfor reported a shareholder net loss of $172.4 million ($1.48 per share) in Q3 2025, compared to $202.8 million ($1.71 per share) in Q2 2025. However, after adjusting for one-time items, the adjusted net loss actually worsened to $171.2 million ($1.47 per share) from $67.0 million ($0.56 per share) in the previous quarter.

Total sales declined to $1,259.8 million in Q3 2025 from $1,379.4 million in Q2 2025, representing a decrease of $119.6 million. This decline was observed across both the lumber and pulp segments.

The reported operating loss improved to $208.3 million in Q3 from $251.4 million in Q2, but this improvement was primarily due to one-time items. When excluding these adjustments, the operating loss before one-time items actually worsened to $111.3 million from $44.0 million in the previous quarter.

A significant factor impacting Q3 results was the substantial increase in duty expenses, which rose to $99.4 million from $18.6 million in Q2. This increase was largely attributable to a $77.2 million expense related to the finalization of the sixth period of review (POR6) rates by the U.S. Department of Commerce.

Detailed Financial Analysis: Lumber Segment

The lumber segment, Canfor’s largest business unit, reported an operating loss of $182.2 million in Q3 2025, an improvement from the $229.2 million loss in Q2. However, after adjusting for one-time items, the lumber segment’s operating loss worsened to $90.1 million from $24.7 million in the previous quarter.

Production volumes declined across all regions, with Western SPF lumber production at 376 MMfbm (down 6 MMfbm), Southern Yellow Pine at 475 MMfbm (down 36 MMfbm), and European lumber at 311 MMfbm (down 64 MMfbm). Shipments also decreased significantly, with total shipments across all regions falling by 168 MMfbm compared to Q2.

On an adjusted EBITDA basis, the lumber segment reported a loss of $2.0 million in Q3 2025, compared to income of $68.3 million in Q2 2025. This substantial decline reflects challenging market conditions, particularly in the Southern Yellow Pine market, where the average 2x4 #2 lumber price fell by $108 to $373 per thousand board feet.

Detailed Financial Analysis: Pulp Segment

Canfor Pulp Products Inc. faced similar challenges in Q3 2025, with the pulp segment reporting an operating loss of $16.0 million, worsening from a $5.3 million loss in Q2. After adjusting for inventory write-downs, the adjusted operating loss was $11.1 million, compared to $2.4 million in the previous quarter.

Despite slight increases in production (107,000 mt, up 5,000 mt) and shipments (105,000 mt, up 3,000 mt), the pulp segment’s performance was negatively impacted by declining prices. The average NBSK pulp list price delivered to China decreased to $690 USD from $734 USD in Q2 2025.

The pulp segment’s adjusted EBITDA showed a loss of $2.3 million in Q3 2025, compared to positive EBITDA of $6.3 million in Q2. This decline aligns with CEO Susan Yurkovich’s comments during the earnings call about focusing on "the things that we can control" amid challenging market conditions.

Strategic Initiatives & Outlook

Canfor’s presentation emphasized its focus on cost-saving measures and operational efficiency to navigate the current market challenges. The company maintains significant financial flexibility with $1.2 billion in available liquidity, according to the earnings call.

Looking forward, Canfor anticipates capital expenditures of $175 million for lumber and $35 million for pulp in 2026. Management expects market rebalancing to occur in 2026, though VP of Sales and Marketing Brian Yuan noted during the earnings call that "material reduction on the supply side" would be necessary to improve market conditions.

The company is also negotiating lender covenants for Canfor Pulp and considering potential share repurchases under a normal course issuer bid, indicating confidence in its long-term prospects despite current headwinds.

Adjusting Items Impact

A closer examination of the adjusting items reveals their significant impact on Canfor’s reported results. In Q3 2025, the company recorded inventory write-downs of $19.8 million and duty expenses related to finalized rates of $77.2 million. These adjustments substantially affected the comparison between reported and adjusted figures.

When broken down by segment, the lumber business recorded inventory write-downs of $14.9 million and duty expenses of $77.2 million, while the pulp segment recorded inventory write-downs of $4.9 million. These adjustments highlight the ongoing challenges in both segments and their impact on financial performance.

Market Reaction & Investor Perspective

Following the release of these results, Canfor’s stock price dropped by 11.54%, closing at $0.39, significantly below its 52-week high of $1.00. This negative market reaction reflects investor concerns about the company’s widening adjusted losses and ongoing market challenges.

The stock’s performance underscores the market’s skepticism about near-term improvement, despite management’s focus on controllable factors and operational efficiency. With current prices approaching the 52-week low of $0.33, investors appear to be pricing in continued challenges for the forestry products company.

In conclusion, Canfor’s Q3 2025 presentation revealed a company facing significant headwinds across both its lumber and pulp segments. While management continues to focus on operational improvements and cost control, the market environment remains challenging, with weak demand, high inventory levels, and significant duty-related expenses weighing on financial performance.

Full presentation:

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